The S&P 500 (SPX) lost 0.2% last week following a sentiment reversal on Friday, when the index dropped 1.2%. This way, the S&P 500 fell below the short-term supporting trend line, which could invite more pressure in the near term.
The Nasdaq Composite Index (IXIC) fell 0.4% after a 1.6% decline on Friday. Finally, the Dow Jones Industrial Average (DJI) closed 0.1% in the green despite a 0.8% fall on Friday.
“Did something bad happen? The short answer is 'no,' it didn’t. Yes, there were some negative headlines, specifically the prices index in Empire Manufacturing jumped (hinting at a bounce back in inflation), a negative Reuters article on TSM weighed on semiconductors and the number of strikes in the economy is growing,” wrote analysts at The Sevens Report.
Looking forward to this week, the key event is Wednesday’s Fed meeting. The market doesn’t see the Fed hiking in September.
“The decision could easily be hawkish given the 2024 “dots” as that could damage the “Fed almost done” pillar of the rally,” the analysts added.
“The bottom line is that just because the Fed won’t hike rates, don’t think this meeting can’t cause volatility.”
On the data front, the key report is Friday’s September flash PMI, while the Philly Fed manufacturing index reading is out a day earlier.
As far as earnings are concerned, the most notable reporters include AutoZone (NYSE:AZO), FedEx (NYSE:FDX), General Mills (NYSE:GIS), and Darden Restaurants (NYSE:DRI).
What analysts are saying about US stocks
Sevens Report: “The FOMC decision has the opportunity to support the “Fed is almost done” pillar. If that happens, stocks can drift higher… If the Fed outlook changes from “Fed almost done” to “Fed will cut soon” that will present a new challenge for markets in the months ahead, and we could well get a preview of that Wednesday.”
Roth MKM: “Momentum over the short term has started to weaken. Our concern for this bull market is if the weak short-term momentum starts to trickle into the intermediate term momentum, the overall market will surely stumble.”
Oppenheimer: “The S&P 500 vs. the Russell 2000 ratio reached a new cycle high last week. Fewer stocks lead when large-caps outperform, but this doesn’t mean that fewer stocks are participating. We’ve argued market breadth has been narrow, but is not narrowing, and instead is slowly improving vs. last year’s broad-based decline. This is one reason we expect the S&P 500 to lift the Russell 2000 higher in Q4, and not vice versa.”
Morgan Stanley: “While the investor sentiment pendulum on a recession arriving in 2023 has swung from roughly "70/30" to "30/70" over the past 6 months based on our dialogue, there is more debate on whether we have avoided it altogether—i.e., soft/no landing, or if it's just been pushed out to 2024. Here, we would say that the majority of investors we've spoken with are in the "pushed out" camp and are of the view that 2024 is now looking like a more challenging year for risk assets relative to 2023.”
Edward Jones: “The underperformance of small-cap stocks, which recently broke below their large-cap peers 2020 low, is a cautionary sign that risks remain. But the foundation for a sustained uptrend in stocks might have already been formed, as earnings estimates appear to have bottomed and have recently surpassed last year's peak.”